Risk Retention Qualified Residential Mortgage (QRM), Ability to Repay Qualified Mortgage

Risk Retention Qualified Residential Mortgage (QRM), Ability to Repay Qualified Mortgage (QM), Basel III

Key Provisions

/ QRM / QM Safe Harbor / Basel III Treatment of Residential Mortgages (Category 1) /
Eligible Products and Features / 1.  Owner-occupied,
2.  1-4 family
3.  Fixed rate
4.  ARMs if the rate cannot increase more than 2% in 12 months or 6% over life of loan
5.  2nd liens in refinance transactions / 1.  Any dwelling
2.  Fixed rate
3.  ARMs based on maximum interest rate over the loan’s first 5 years
4.  Prepayment penalty if less than 3 years and 3% in year 1; 2% year 2; 1% year 3 / 1.  Duration = 30 years or less
2.  Lender must conclude, based on borrower’s documented and verified income, that the borrower has the ability to repay
3.  ARMs based on maximum interest rate over the loan’s first 5 years if the rate cannot increase more than 2% in 12 months or 6% over life of loan
4.  2nd liens held by the first lien holder so long as both are Category 1
5.  Borrower must be qualified using the principal and interest payments based on the maximum term of the HELOC
Ineligible Products and Features / 1.  Negative amortization
2.  Interest-only
3.  Balloons
4.  Prepayment penalties
5.  Reverse
6.  Bridge
7.  Construction
8.  Time share
9.  Loans with terms exceeding 30 years or
10.  Less than 12 months,
11.  2nd liens in purchase money transactions / Negative amortization, balloons except if issued by small lenders in rural areas.
HELOCs, reverse, bridge, construction, time share, and loans with terms exceeding 30 years or less than 12 months / 1.  Increase in principal balance, allow the borrower to defer repayment of the principal, or result in a balloon payment
2.  Annual rate of interest cannot increase more than 2% in any 12 month period, and no more than 6% over the life of the mortgage
3.  2nd liens not held by the first lien holder
Points/Fees Cap / 3% of loan amount / 3% of loan amount for loans $75,000 and above with higher percentages for smaller loans.
Exclusion for up to 2 discount points. / Relevant for inclusion in borrower’s ability to pay calculation, but irrelevant as a stand-alone criteria
Down Payment / 20% plus closing costs / Not applicable / Not applicable
Loan-to-Value Ratio / 80%: purchase loan
75%: rate/term refinance
70%: cash-out refinance / None specified / The following LTV-based risk-weights apply:
Debt-to-Income Ratio / 28%: front-end
36%: back-end / No specific ratio. Lender must consider and verify income. / None specified. Lender must determine that the borrower has the ability to repay based on the borrower’s documented and verified income.
1.  Criteria for this determination includes the maximum interest that may apply during the first 5 years after closing; and
2.  Amount of the mortgage = maximum possible exposure over the life of the mortgage, as of the date of closing
Credit History / Must not currently be 30 days past due on any debt.
No 60-day delinquency in the past 24 months.
No bankruptcy, foreclosure, short-sale, etc. in the past 36 months. / The loan cannot be more than 90-days past-due or on non-accrual status
Small Loans / Not applicable
Mortgage Insurance / Not a criteria / Not specified / Not included in LTV calculation
Servicing / Must comply with regulatory standards / Not applicable
Appraisal / Written appraisal required / Not applicable
Assumability / Prohibited / Not applicable
Entities subject to the rule / Securities issuers / Loan originators / Banking Organizations
Enforcement authority / FDIC, FHFA, FRB, HUD, OCC, SEC / CFPB / FDIC, Fed, Treasury
Penalty for noncompliance / Non-QRM loans must be purchased out of the security. / Violations are a defense to foreclosure / All loans not within the Category 1 criteria are Category 2 mortgages.

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